It might be a bit like turning around an ocean liner in a small river, but sourcing giant Li & Fung is adapting to the rapid changes in global manufacturing and retailing.
Robert Sinclair, president of Li & Fung, delivering a keynote at the Sourcing Journal Summit last week, said all of the executives at Li & Fung have been “on a journey the last three years” as the company rethinks its goal, relevance and position in the supply chain and figures out how it can adapt and modify its business model.
“Kicked off by Spencer Fung, our group CEO, it’s been an amazing journey,” Sinclair said.
Fung, who joined Sinclair for questions following the keynote, said, “The toughest job I ever had when I became CEO three years ago was to change the mindset of 22,000 people.”
[Read more about Li & Fung: Sourcing Scoop: Spencer Fung on the Fate of Li & Fung’s Business in the Face of Accelerating Disruption]
In Li & Fung’s core, global sourcing and manufacturing, Sinclair said, “Speed is the new currency,” not just speed to market, but also the ability to “act quickly and be agile and act fast.”
Fung added that it’s part of the industry being turned on its head.
“Global sourcing has been a cost-optimization model for the last 40 years,” the CEO said. “We see a huge shift now to a speed-optimization model. Everything is going digital. We’ve seen teams reach a tipping point and we’ve seen countries reach a tipping point. Speed is of the essence.”
Li & Fung is turning to technology to accomplish much of the changes, using 3-D virtual sampling and virtual fitting, which save time and reduce costs. The company is also developing virtual design systems and integrating more robotics in its facilities.
Sinclair said the integration of virtual sampling has increased the product development cycle to four to six days from four to six weeks, with virtual fitting advancing it to four hours from 30 days.
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“Our mission is to digitize the supply chain,” Sinclair said. “We’ve created a digital interface with suppliers using a vendor portal and are developing a customer portal. Li & Fung is a sourcing company, but we’re really more of a supply chain solutions company at this point.”
Beyond the fundamental changes in manufacturing are global shifts on many levels.
“When you’re talking about a sourcing strategy with customers, you have to also think about the geopolitical landscape that you’re faced with, whether that be China, Bangladesh, Central America, the Mediterranean, you have to know what’s happening, but also in the countries that you’re servicing,” Sinclair said.
He noted things like Brexit, the attempt by Catalonia to gain independence from Spain and the rise of populism around the world as issues that could impact sourcing decisions, as well as trade policies and agreements. Core issues surrounding raw materials prices must always be followed by sourcing specialists.
Sinclair also said demographic changes and population shifts affect retail and marketing strategies.
“Divergent demographic trends will alter the composition of consumption globally,” he said. “By 2050, it’s forecast that for every one American and European, there will be six in Asia, Africa and Latin America.”
As for retail, “brick and mortar is still important, but e-commerce is growing rapidly and that’s disruptive,” he said. And it’s causing a rethink of distribution and supply chain channels.
Sinclair noted that in the U.K., for instance, 14.9% of retail sales are generated online, roughly double what it was seven years ago.
So too is the shift in key customer demographics to millennials from Baby Boomers.
“The average annual income for millennials is 20 percent lower, adjusted for inflation, than Baby Boomers were at the same age,” Sinclair said. “That’s a huge reduction in disposable income.”
In addition, they carry a big debt load that reflects what’s happening in retail and the growth of the value chain.
“If you’re in retail you have a few questions to ask yourself in how do you attract that consumer, how do you generate foot traffic,” Sinclair said. “You have to think differently and have to figure out how to entertain you customers, either through educating them or through celebrity attractions, to generate interest for them to come into your stores.”
With the rise of e-commerce, the entire supply chain has started to shift to the demand-driven space from the supply-driven space, and Li & Fung is adjusting its business models to react to that sea change.
“The ones that are winning at retail are those that are selling at full price, no markdowns, because they know exactly what the customer wants because it’s demand focused,” Sinclair said.